Park Place stock sinks

David Strow

Thursday, Jan. 4, 2001 | 11:18 a.m.

Casino giant Park Place Entertainment Corp. of Las Vegas delivered a double dose of bad news today, reporting that it will badly miss fourth quarter earnings estimates -- and that the planned sale of the Las Vegas Hilton is probably off.

The company, the largest in the gaming industry, reported this morning that it expected to report little to no profit in the fourth quarter, compared to analyst expectations of 13 cents per share and a profit in the third quarter of $68 million, or 22 cents per share.

Since Park Place said its new fourth-quarter estimate does not include one-time charges, it appears likely Park Place will post a loss.

The company also announced a dispute with Los Angeles developer Ed Roski Jr., who had hoped to acquire the Las Vegas Hilton from Park Place for more than $300 million and transform it into a locals-oriented property. Now it appears likely the Hilton will stay with Park Place.

"If, as the company believes is likely, Mr. Roski fails to complete the purchase, then Park Place expects that it will cease efforts to sell the property and continue to operate it in the ordinary course," a Park Place statement said.

The news sent Park Place stock down to $9.50 this morning -- down $2.44 or 20.42 percent. Several prominent gaming analysts downgraded the stock.

That the Hilton sale now looks unlikely didn't surprise many on Wall Street, as speculation had been swirling for several months that Roski had been having difficulty coming up with financing. What shocked analysts was that Park Place would miss earnings estimates so badly.

"Obviously it's a disappointment," said David Anders, gaming analyst for Merrill Lynch. "People are trying to sort through how much of this is one-time (problems) and how much is recurring."

Park Place blamed the lower-than-expected earnings on several factors -- poor table game "hold" at its Las Vegas Strip-area properties; the impact of winter weather on its casinos in Atlantic City, Mississippi and Indiana in December; and a "continued competitive environment" in the Mississippi market.

Most troubling could be Park Place's report that play at the new Paris Las Vegas, as well as at attached property Bally's Las Vegas, was below the levels seen in the fourth quarter of 1999.

"It sounds like there was softness at Bally's/Paris," Anders said. "What we're trying to figure out is if that was all (poor) hold, or if there were other issues."

One possibility is that the newly opened adjacent Aladdin resort drained business from Bally's and Paris.

The company also said it will record a $15 million one-time charge during the quarter related to "compensation and benefits costs" associated with the contract of former Chief Executive Arthur Goldberg, who died in October.

Meanwhile, Anders said Park Place earnings could be impacted by 2 to 3 cents per share because of the likely failure of the Hilton sale.

Park Place said a dispute has arisen over the delayed closing of the Hilton sale. Roski has already put up a $20 million deposit for the Hilton; the agreement called for him to close the deal by Wednesday or put up an additional $5 million to extend the deadline to Feb. 7.

Park Place said Roski has not provided the company with the extension payment "and has asserted alleged breaches by Park Place under the agreement." Park Place didn't elaborate, but denied wrongdoing, and said it will "endeavor to complete the sale or pursue its remedies under the agreement."

Roski couldn't be reached for comment this morning.

"As the high-yield (junk bond) markets tightened up, it became evident Roski would have difficulty raising the funds necessary, so it's not too much of a surprise," Anders said.

But another factor that created difficulty for Roski, sources familiar with the deal say, was declining cash flow at the Hilton -- a critical factor for gaming lenders. In the third quarter, cash flow at the historic property was a negative $1 million -- down $13 million from a positive $12 million in the same quarter of 1999.

Sources say Roski had talked with two wealthy gaming executives -- Stratosphere owner Carl Icahn and International Game Technology Chairman Chuck Mathewsen -- about joining him in investing in the Hilton, but nothing came to fruition.